19 April 2005
CP Rail Plans Track
Expansion
Canadian Pacific Railway Co.
will spend $160 million to expand its track network between the Prairies and the port of Vancouver,
wagering that China's booming demand for Canadian resources will continue.
But the company is hedging its bets, dividing a potential $500 million total expansion into three
phases.
"We believe that over the course of time, our program could be as much as $500 million and we've
chosen to do it in three blocks," chief operating officer Fred Green said in an interview
yesterday.
"What that does is allow us to put sufficient capacity in for the foreseeable future without
getting stuck with a half-billion-dollar investment in the ground and then seeing the
market tank."
Canada's second-biggest freight carrier said yesterday the first phase of the expansion
will be completed this fall and will increase the Calgary-based railway's capacity in
Western Canada by 12 percent, or more than 400 freight cars a day.
"CP has been advertising this potential expansion for some time," said Randy Cousins of BMO
Nesbitt Burns.
"I don't think they would have proceeded with this if they thought that there was great risk they
wouldn't be able to use that capacity. And certainly there's no question about the level of growth
we've seen at the port of Vancouver - both coal going out and intermodal products coming in."
CP Rail expects the expansion will generate enough new business to boost profits by 25 to 40 cents per
share this year. With 159 million shares outstanding, that could range between $40 million and about
$64 million.
The company's preliminary guidance for 2005 earnings was $2.60 per share. It raised that by 55 to 60
cents recently after signing a five-year contract with its largest customer, Elk Valley
Coal Corp., increasing coal shipments from the B.C. Interior to the West Coast.
That contract was one of a series of recent events that gave CP Rail the confidence to proceed with
the expansion, Green said.
"Over the course of the last 12 or 18 months, it's become increasingly apparent that the product,
particularly westbound, although strongly influenced also by the Chinese import product that's coming
in to Canadian retailers, just continues to have legs," he said.
The expansion also will meet rising demand for grain, potash, sulphur and other resources for shipment
to China, Japan, South Korea and elsewhere.
Potash producers recently announced a substantial expansion in Saskatchewan, and CP Rail carries all
the potash travelling through the port of Vancouver, Green said.
Meanwhile, the sulphur business is riding the wave of oil-sands production, and Green
expects the grain business to pick up this fall after disappointing years due to
drought.
CP Rail's new $160 million expansion is in addition to planned capital investment of $760 million this
year, the company said.
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